Dennis D'Andrea - Vice President, Investor Relations William P. Lauder - President, Chief Executive Officer, Director Richard W. Kunes - Chief Financial Officer, Executive Vice President Daniel J. Brestle - Chief Operating Officer

Sandhya Raju Beebee - HSBC Amy Low Chasen - Goldman Sachs Christopher Ferrarra - Merrill Lynch Filippe Goossens - Credit Suisse Bill Schmitz - Deutsche Bank Linda Bolton Weiser - Oppenheimer & Co. Wendy C. Nicholson - Citigroup Smith Barney Neely J. N. Tamminga - Piper Jaffray Christian Andreach - Manning & Napier Advisors Justin Hott - Bear Stearns Constance Maneaty - Prudential

Good day, everyone, and welcome to the Estee Lauder Company’s fiscal 2007 second quarter conference call. Today’s call is being recorded and webcast. For opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Dennis D'Andrea. Please go ahead, sir. Dennis D'Andrea: Good morning, everyone. On today’s call we have William Lauder, President and Chief Executive Officer; and Rick Kunes, Executive Vice President and Chief Financial Officer. Dan Brestle, our Chief Operating Officer, is also here. He’ll be available for the Q&A session. Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you’ll find factors that could cause actual results to differ materially from these forward-looking statements. I’ll turn the call over to William.

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IR firm sponsors transcript of micro-cap company: Consulting company sponsors company's transcript in sector of interest: Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details. William P. Lauder: Thank you, Dennis. Good morning and thank you for joining us to discuss our second quarter results. We continue to execute effectively and advanced our strategic imperatives, which are reflected in our performance. I’m pleased to report that sales rose a strong 12%, reflecting net sales growth in all major product categories within each region. Diluted earnings per share from continuing operations was $0.99, up 42%. The results exceeded our forecast, thanks to stronger sales, lower operating expenses, the mix of our business and foreign currency translation. Rick will provide more details later. During the critical holiday season in North America, we achieved solid gains across many brands, categories and channels. The Estee Lauder brand’s blockbuster gift proved extremely popular, as did gift sets from various other brands. Much of the holiday related inventory was sold prior to Christmas, which was good news. Our retail sales in North American department stores were flat for the quarter, but there were approximately 100 fewer doors this year versus last. However, we saw gains in other channels of distribution, including online, free-standing stores and salons. Consumer demand seems healthy, and we feel confident about performing well during the remainder of the fiscal year. We have indicated previously that we expect much of our growth to come from international markets and this is reflected in this quarter. Sales in Europe and Asia rose double-digits. We were also helped by the weak U.S. dollar, which boosted reported sales by 3 percentage points. Sales of course vary by brand and country, but in general, we posted solid growth in major markets, including Japan, the U.K., and Germany. We also had robust improvements in many emerging markets. Sales of our two largest brands, Estee Lauder and Clinique, rose in all international regions. Worldwide, sales of each brand climbed by low single digits. M.A.C. is now available in more than 60 countries and continues to be a major success. It is widely accepted by people of disparate cultures and varied complexions. Higher same door sales and 19 new doors helped lift M.A.C.’s international sales by double-digit rates. Despite concerns earlier in the year, the travel retail business also grew double-digits. Estee Lauder, M.A.C., Bobbi Brown, and DKNY were particularly strong in the channel. We advanced our imperative to further expand our brands and products across the globe. To pursue the latest science, we established the Kobe Skin Research Institute in Japan. Scientists at this facility are conducting research for our company into Asian skin characteristics and focusing on developing products to address pigmentation and skin aging. Aveda opened a lifestyle salon in Osaka, marking its second flagship in Japan and its first location in the western half of the country. Aveda products are already sold in more than 100 salons in Japan’s eastern region, and we plan to pursue opportunities in the rest of Japan. Elsewhere, we plan to start selling Aveda products in Spain in April. We established an affiliate in Brazil, which began operations in December. We recently imported M.A.C., Clinique, and Aramis and designer fragrance products into Brazil under the new affiliate. M.A.C. recently launched in Peru, where it rapidly became the number two brand in its two doors. Italian consumers can now buy Jo Malone in Milan, and La Mer is available in Poland and Argentina. We continue to revitalize our two largest brands, and now have a season’s worth of experience with national gift dates implemented by major U.S. department stores. We had anticipated the total gift sales would decline due to fewer department store doors than last year. For the Estee Lauder brand, gift sales were flat for the six-month period in like doors. For Clinique, where gift related sales in like doors for a six month decline, the business is more challenging. We believe that both brands were impacted by having fewer promotions to offer consumers, as several regional department store nameplates were relegated to history. For example, in Boston last year, consumers would have received free Clinique gifts with purchases at Filene’s and Macy’s. Filene’s is now closed, so consumers only have one store, Macy’s, where they can shop the gift program. Both brands are taking steps to make gifts more appealing. Based on good response, Estee Lauder plans to expand its choice gift program this spring into more Dillard stores. Clinique’s Editor’s Choice program debuted at Lord & Taylor in December and is set to continue throughout the spring season. Clinique plans to increase the value of its gifts to make them more attractive to consumers. Last week, Clinique opened the Clinique Skin Wellness Center at Weill Cornell Medical College in New York. The center, the first of its kind for research and patient services, reaffirms Clinique’s dermalogical heritage and further establishes its authority in skin care. Looking at our business by category, the holiday quarter is crucial for fragrance. More than one-third of its sales occur in this period. Sales of fragrance, our most challenging area, grew double-digits during the quarter, but bear in mind that we had easy comparisons. During the same period last year, fragrance sales fell 11%. We have seen that consumers’ tastes have begun shifting from celebrity-driven scents to more classic and designer names, which helps our portfolio. We have invested in our scents that have universal appeal, or the cache of a fashion designer, believing they have more longevity than the latest celebrity craze. During the holiday quarter, four of the top five women’s fragrances in U.S. prestige department stores were ours, led by Estee Lauder Beautiful. One of our newest fragrances, Sean John Unforgivable, was ranked fourth for men’s scents in prestige. Consumer demand for our new fragrance, Tom Ford Black Orchid, was higher than planned. It is currently available in limited distribution in nine markets. Jo Malone sales rose by strong double-digits in the quarter, thanks to increased U.S. and international distribution, including two new doors in California. The Aramis and designer fragrance business improved outside North America, helped by the recent launch of DKNY Red Delicious. We devote tremendous resources and talent to keep all our categories fresh with new products. In March, through our Beauty Bank division, we will launch the Coach fragrance, which will be sold exclusively at 220 Coach free-standing stores in the U.S., a new distribution channel for us. We are also optimistic about other upcoming introductions, including M.A.C.’s Raquel Welch Beauty Icon collection, and Clinique’s Continuous Rescue, just to name a few. We remain on the lookout for new opportunities in the area of distribution. Bobbi Brown tried TV for the first time. It debuted on QVC in the United Kingdom. The product sold quickly during an hour-long show, and more segments are planned. We expanded our visibility at one of our most important retail locations, Bloomingdale’s 59th Street store in New York City. The Estee Lauder brand unveiled a remodeled selling space which includes a dedicated counter to showcase its high-end skin care line, [Re-Nutriv]. Luxury skin care is a growing, profitable area and we want to draw attention to this successful product line. Looking to reach new consumers, we brought La Mer into the busy cosmetics area of Bloomingdale’s 59th Street store. Accelerating our retail store strategy, we opened 16 new free-standing stores during the quarter, mostly for M.A.C. Let me now give you some details about our thriving online initiatives. To attract consumers to all points of sale and to reach a broader audience, we are directing more marketing dollars to new media. While online spending is still a fraction of our advertising budget, we are making progress experimenting with online tools. We launched micro-sites for Estee Lauder Advanced Night Repair and Clinique Happy, and devoted about half of the media budget for Sean John Unforgivable to the online space. More recently, Estee Lauder teamed up with theknot.com, a wedding site, to advertise Beautiful Love, a new addition to the Beautiful fragrance collection. Estee Lauder is using the Internet to spread the word about Resilience Lift Extreme Ultra-Firming makeup, an important new foundation that has skin care benefits. Next month, M.A.C. will launch its first micro-site for its Barbie makeup collection. During the quarter, we partnered with NBC Universal to create weekly beauty segments for a new kind of interactive television show called iVillage Live. We linked our brand e-commerce sites to the program’s website, and consumers can buy products in real-time while watching television. Glossy magazines are still the mainstay of our advertising and marketing agenda, and we are working with them as they too increasingly devote resources to their online operations. We are committed to reaching a wide cross-section of consumers, whatever their reading, surfing and shopping habits. Increasingly, they are shopping online. E-commerce sales from our brand and retailer sites rose by double-digits in the quarter. We are considering promotions other than free shipping to keep the channel fresh and drive new and repeat business. Our French and Australian affiliates have begun selling M.A.C. online, and plan to add more brands to their e-commerce operations during this fiscal year. The four brands we have available online in the U.K. sold well in the first holiday season, and we expect four more to be added next fiscal year. With half of the 2007 fiscal year behind us, we are happy with our results and accomplishments, and with the efforts of our management team and all the people throughout our organization. Now, I would like to hand it over to Rick Kunes, our Chief Financial Officer, to take you through the financial details. Rick. Richard W. Kunes: Thank you, William, and good morning, everyone. My discussions today will focus on our results from continuing operations. Our sales this quarter totaled $1.99 billion, a very strong 12% increase over last year’s quarter. In local currency, sales rose 9%. Net earnings from continuing operations for the quarter were $208.5 million, compared with $150.4 million last year. Diluted EPS rose 42% to $0.99, versus $0.70 last year. These results exceeded our projection due to a number of factors, including higher-than-planned sales, lower operating expenses, and a weaker-than-expected U.S. dollar. I’ll discuss these and other factors throughout my comments. But first, let me refer you to today’s press release for the details of our net sales and operating income by product category and geographic region. As was the case in the first quarter, the Americas region and each of our product categories except hair care, were adversely impacted by fewer department store doors, resulting from the consolidation of Federated and May last year. In our third quarter, we will anniversary the majority of those door closures. On a reported basis, our sales this quarter came in higher than we forecasted, due to the weakened U.S. dollar, unexpectedly benefiting our business by approximately 2%. Also, in local currency, our actual sales growth exceeded our projections. Skin Care sales had the largest increases from our European and Asian businesses, while more moderate growth was reported in the Americas. Internationally, we benefited from several product introductions, as well as strengthened some existing products, particularly from Estee Lauder and Clinique. In makeup, the Asia region generated strong double-digit growth, while our business in Europe and the Americas turned in high single-digit gains in local currency. Throughout, our makeup artist brands continue to lead the category, with double-digit sales growth worldwide. Fragrance sales were up nicely, benefiting from a solid performance in Europe and a successful holiday season in the Americas. While this category was up against an easy comparison to last year, when sales declined 11%, this year our holiday sets proved to be more popular, with many selling out early in the season. We enjoyed solid results from some new and recently introduced fragrances, while at the same time experienced lower sales of certain existing products. In Hair Care, organic growth in salons and independent distributors, salon expansion, and new product introductions were the main reasons behind the double-digit sales gains. Geographically, our international business led our growth this quarter. In Europe, the Middle East, and Africa, despite coming off double-digit local currency growth last year, we grew net sales 9% for the quarter. A few key businesses drove this performance, including Travel Retail, which posted a double-digit increase. Even with the temporary disruption that occurred last quarter, our Travel Retail business is nearly at year-to-date plan levels. In the United Kingdom, which is our largest market in the region, sales growth was very high single-digits, owing to a strong performance in our biggest account, Booths, as well as solid results in department stores overall. Russia, one of our emerging markets, has shown terrific progress and reported an outstanding quarter. In Turkey, where we recently established an affiliate, sales were up nicely, exceeding our expectations. Sales in Asia-Pacific also fared well this quarter, with all countries reporting local currency sales increases. China and Hong Kong were again double-digit growth contributors, while sales in more established countries like Japan and Korea rose high single-digits, reflecting improved economies and consumer sentiment. In the Americas, net sales increased 7%. This performance was slightly better than expected, due to a strong surge of orders from retailers during the middle of the quarter. As expected most specialty stores had stronger increases. However, there was more modest sell-through growth in department stores. Strong sales gains came from our makeup artist lines, new products from Sean John, and our hair care and online businesses. We continue to experience weakness in our core brands as a result of competitive pressures and retailer consolidation. You may recall that store closures resulting from the Federated-May merger affects our core brands more than our developing brands. We will anniversary the majority of these closures in our third quarter. That said, there remains a disparity in the growth of our business in Federated’s legacy doors versus the May doors where the nameplate change to Macy’s has occurred. Moving on to gross margin, we had a 60 basis point improvement this quarter to 74.9%. This gain reflected a decrease in the level and change in timing of promotional activities, decreased obsolescence charges, a favorable change in the mix of our business, and favorable exchange rates. Our operating expenses for the quarter as a percentage of sales decreased to 58.2% from 60.2% last year. This 200 basis point improvement exceeded our forecast due to the higher sales growth, especially from brands carrying lower operating costs, and the fact that certain core brands reduce spending in response to softening retail sales towards the end of the quarter. We expect a higher level of investment spending during our fiscal second-half for programs and initiatives that we believe will drive both our basic business and gift sales. Part of our improvement in operating expense margin reflects the prior year period’s incremental provision for sales returns from the announced store closing related to retailer consolidations. Additionally, we continue to benefit from incremental savings this year associated with our cost reduction program. Partially offsetting these improvements were increased selling expenses, reflecting higher demonstration and education costs of beauty advisors and makeup artists, as well as investments in new channel initiatives. The combined benefits from higher sales, lower operating expenses and foreign exchange resulted in incremental EPS of approximately $0.14 versus our previous forecast. As a result, our operating income rose 33% to $332.4 million, with a 260 basis point improvement in margin. Looking at operating profits by category, all categories improved, basically reflecting the strong sales results of this quarter. By region, operating profit increased across the board. In the Americas, higher sales, our efforts to balance advertising, merchandising and sampling spending with our net sales levels in our core brand, as well as other planned company-wide cost containment efforts, resulted in the improvement in operating income. Stronger sales from our hair care and online businesses also contributed to the improved results. As a reminder, in the prior year period, operating income in the Americas was negatively impacted by a $10 million incremental returns provision due to retailer consolidations. In Europe, the Middle East, and Africa, operating income increased compared with last year’s quarter, due to improvements in some key markets and businesses, such as the U.K., travel retail, and Russia. Slightly offsetting these increases were lower results in the Benelux countries, France and Italy. Our business in Asia-Pacific generated strong operating income growth, with virtually all countries posting increases. Healthy operating income gains were reported in Hong Kong, China, Australia and Taiwan, due to sharply higher sales. The effective tax rate for the quarter was 34.9%. This rate also was lower than we have previously anticipated for the quarter, due to enacted tax legislation regarding certain tax credits, as well as the change in the tax effect of foreign operations, generating approximately $0.04 incremental EPS for the quarter. Now let me turn to our cash flow and balance sheet. Cash flows from operating activities were $313 million for the quarter ended December 31, 2006, compared with $389 million last year. The change primarily reflects an increase in accounts receivable at December 31st of $137 million compared with last December, due to the higher sales, especially from our international operations. As you know, our international businesses generally carry longer payment terms, and this quarter we’re coupled with the extension of credit to some international customers to strategically expand our business in certain markets. Our day sales outstanding were 45 days this quarter compared with 42 days last year. Inventory at December 31, 2006, was $783 million, a $56 million increase over the prior-year period. While inventory days were slightly higher at 165 days compared with 163 days last year. During the quarter, we repurchased approximately 3.5 million shares of our stock, bringing the total for the six months to 6.5 million shares, returning $254 million to stockholders. During the quarter, we were more aggressive in our share repurchases than we planned, which added another unplanned $0.02 to EPS. All of our return ratios continue to improve, including our key return on invested capital ratio, which increased nicely during the quarter. We spent $141 million for capital expenditures during the quarter, which includes incremental spending for our company-wide systems initiative. For fiscal ’07, we anticipate approximately $700 million of cash flow from operations and expect capital expenditures of approximately $290 million. Now I’ll update you on our assumptions for the balance of the fiscal year. For the full fiscal year, we estimate our sales growth at approximately 6% to 7% in constant currency. We now estimate that foreign currency translation will benefit our reported top line approximately 1.5%. We anticipate continued solid domestic and international sales growth. Our strong first-half results give us the opportunities to step up our investment spending in the second-half to drive long-term growth. At the same time, we are comfortable increasing our full-year estimate of diluted EPS from continuing operations to between $2.10 and $2.20. For the full year, we expect improvements in gross margin to offset increased operating expenses, resulting in a relatively consistent operating margin versus last year. Our gross margin should benefit from supply chain savings, product mix, and lower promotional spending. In operating expenses, we continue to expect several factors to impact us this year, including: planned higher levels of investment spending behind new product launches at the channel initiatives; more spending on selling and training, as well as for our faster-growing and developing brands; incremental spending related to our strategic modernization initiative, as well as IT security related enhancements; and, in addition, we now see an opportunity to selectively and strategically invest additional funds to drive growth in the second-half of our fiscal year and beyond. We remain on track to realize an incremental $30 million of savings this year resulting from the cost savings initiative that we implemented last year. These savings have been included in our overall expectations. At this time, we expect our effective tax rate will be approximately 35.5% for fiscal 2007. This change in rate comes from our previous forecast of 37%, reflects similar reasoning to that discussed earlier regarding our second quarter effective rate. Looking at our third quarter, our forecasted sales growth is approximately 4% to 6% in local currency. We anticipate a positive impact of foreign exchange of about 1.5% to 2%. We expect EPS for the three months ended March 31, 2007 to be approximately flat with last year. Separately, we are moving along with our preparations for our analyst and investor day on March 6th here in New York. We look forward to seeing you at that time. For those of you that will not be able to attend in person, the entire event will be webcast on our corporate website. That concludes my comments for today, and we’ll be happy to take your questions.

Our first question come from Sandhya Raju Beebee with HSBC. Sandhya Raju Beebee - HSBC: Good morning. I have a question about the level of investment that you guys are talking about now, because you quantified the amount of increased investment spending at the start of this fiscal year. Is that now going to be higher than you thought before? Can you talk a little bit about where, if there is additional spending, where we should see that? What businesses are going to be benefiting from that? William P. Lauder: Sandhya, it’s going to come at a number of different places. It’s not going to come in any one specific bucket. We are primarily focusing our brand management on a number of different activities, which is predominantly, as we mentioned, in new media. Basically, we want to use the momentum we have and good results now to motivate our brand management to pay attention to what we think is a primary engine for acquiring new consumers and communicating with them in a different manner. We’re trying to motivate them with what seems to be the biggest bait out there, which is money. Sandhya Raju Beebee - HSBC: Okay, because you beat the quarter significantly versus -- the quarter came in significantly ahead of plan, and yet the second-half guidance is not appreciably, not -- the full year guidance is not going up to the same extent. Is that difference this additional spending? Richard W. Kunes: Yes, the difference is additional spending, but again, we do manage our business on a full-year basis. Based on our first-half results, we were able to take our full-year guidance up, depending on how you want to look at it, from $2 to $2.20. That’s the two extremes of the ranges that we had given. At the same time, as William just described, be able to invest strategically in business growth opportunities that we think will benefit the company long-term. We were admittedly probably somewhat conservative in our plans for the first-half of the year. We wanted to make sure that we’re able to meet our financial commitment, but at this time, we’re comfortable with the guidance that we’ve given for the year and we’re also comfortable with the concept of having some money to invest to really grow our business long-term. Sandhya Raju Beebee - HSBC: Okay, thank you.

Your next question comes from Amy Chasen with Goldman Sachs. Amy Low Chasen - Goldman Sachs: Good morning. North America, William, you said that sales were flat in department stores, but that includes the door closings. So that implies that if you exclude the door closings, that your same-store department store sales were stronger. Can you tell us how much that was up? William P. Lauder: Amy, the same stores were flat because most of the stores were closed. Our department store business in North America was a little bit stronger than we had anticipated and than it should have been by probably a couple of percentage points. The reason for that is that we saw the department stores buy into what they thought was a much stronger Christmas season than I think overall it turned out to be, and we’re seeing some of that impact affect us in the third quarter, which is why we have that slightly slower sales growth number in the third quarter because they’re not replenishing inventory that hasn’t sold through. Amy Low Chasen - Goldman Sachs: Okay, so just to be clear, the North American same-store department store sales were flat? Daniel J. Brestle: We were up low single-digits. Total company department store sales, same stores, low single-digits. Amy Low Chasen - Goldman Sachs: Sorry, total company or North America? Daniel J. Brestle: North America. All brands. Amy Low Chasen - Goldman Sachs: Okay, and so there was a little bit of kind of the department stores were buying ahead of what they thought was a stronger -- there’s going to basically be inventory de-stocking in the third quarter? Daniel J. Brestle: Let me explain that real quickly. We had tremendous sell-through in our Christmas gift sets. It was a year of value and those value sets sold through. In all Christmas shipments, we have Christmas gift sets that sell in and a lot of basic goods that sell in, which the beauty advisors put together at full value. The softness we saw was on the full value sets. Those last 10 days, that consumer who is usually desperate, whether they were buying ready-to-wear at markdown prices or whether it was the gift card phenomena, that was the softness of the business. But the sell-through of our gift set business was at record numbers. We sold out of gift sets, blockbuster, you name it, faster than we have in the last 10 years. Amy Low Chasen - Goldman Sachs: Okay, now, your overall North American was actually pretty good, up 7%, which I think is a great number, despite everything you’re describing. Can you give us some color on the biggest drivers of that in terms of retail stores versus salons versus any distribution gains you may have had? William P. Lauder: It’s primarily driven by three factors, Amy, and you named it. One, retail stores have a tendency to trend above department store sales, and that happened. Secondly, our hair care business was significantly up, partially fueled by an acquisition, there was one acquisition of a distributor in the Aveda network and Bumble’s growth, too. Those are the biggest engines. And of course, our emerging brands, which we’ve talked about -- M.A.C., Bobbi Brown and what not, have seen faster growth than the more established gift with purchase driven brands. Richard W. Kunes: Amy, we also had strong growth in our Internet business as well. William P. Lauder: Yes, our Internet business is continuing to be our fastest growing channel of distribution, and it’s meaningful. Amy Low Chasen - Goldman Sachs: Okay, last but not least, can you just give us an update on any potential acquisitions you may be looking at? Richard W. Kunes: No. Amy Low Chasen - Goldman Sachs: Are you looking at any? Richard W. Kunes: Of course. Amy Low Chasen - Goldman Sachs: Okay. Thank you.

Your next question comes from Chris Ferrarra with Merrill Lynch. Christopher Ferrarra - Merrill Lynch: Hey, guys. I wanted to talk about the leverage factor for the quarter. It looks like, if you assume most of your advertising is fixed either relative to your guidance, right? I mean, you go into the quarter with a certain level of advertising. You expect it as incurred. Most of your selling is probably fixed. Can three points of sales upside generate a couple hundred basis points of operating expense leverage for you? Richard W. Kunes: I think you hit upon it, Chris, the fact that most of those expenses are fixed and we were surprised to some extent with the foreign exchange, the weakness of the dollar, which added about $20 million of sales to the quarter, and our basic sales was about 1% higher than we had anticipated it to be, and that’s $40 million. And there’s very little expense associated with that, quite honestly, so it does drive quite a bit of profitability in the quarter. Christopher Ferrarra - Merrill Lynch: On M.A.C., did that business decelerate, given you had a bunch of door openings? I know you said it was up double-digits, but it wasn’t up the 20 we’ve been accustomed to. Where is that business if you look at it on a same-store basis? William P. Lauder: The M.A.C. business on a same-store basis is trending very nicely. It perhaps does not have the same velocity it’s had year on year, especially in the data you might be seeing versus MPD, but it continues to have a very nice trend. M.A.C. did stub their toes a little bit in the second quarter, excuse me, primarily due to some restrictions they had in the state of California, both from employment practices and communications with consumers, which tied their hands. The state of California is a very significant portion of the total M.A.C. business, but the brand is growing at approximately 20% on a global basis. North America may be the biggest chunk of it, but on a growth basis, it’s still growing at a very aggressive number. It’s a meaningful business. Christopher Ferrarra - Merrill Lynch: Just one quick thing on the extension of credit to international customers to strategically grow the business, who are you extending credit to? Richard W. Kunes: Chris, primarily it’s in Russia where historically we had cash on delivery business there. Now, that business is growing nicely and we have normal trading terms. We’re also increasing the credit limits of that business as it grows, so in other words, if we had, we would allow a credit limit of up to $1 million, we now have increased that number to $5 million or $7 million. That’s sort of the concept. So it’s not that we’re extending payment terms, if you will. We’re just expanding the normal credit terms as the business grows. Christopher Ferrarra - Merrill Lynch: Great, thanks a lot.

Your next question comes from Filippe Goossens with Credit Suisse. Filippe Goossens - Credit Suisse: Good morning, gentlemen, and congratulations on the wonderful quarter here. My first question, if I may, William, as part of your normal business practices, you’re always reviewing your portfolio to see where there are some weaknesses and where you can strengthen it. Given the continued challenges within the fragrance side of the business, is there any reason why we should believe that perhaps you could be looking at divesting some of the weaker brands on the fragrance side? Alternatively, just as a follow-up on Amy’s question from an acquisition perspective, now that you’ve opened this affiliate in Brazil, is it fair to assume that from an acquisition perspective, you probably won’t be doing anything in Latin America for the foreseeable future? William P. Lauder: There’s a number of different things there. I think in regard to your second question first, I wouldn’t want to make any commitments one way or the other as to where we might be looking at acquisition opportunities or not -- regionally, globally, categorically. So we’ll be talking in more detail when we see you March 6th at our investor conference on a number of the different strategic alternatives that we are looking at seriously. It perhaps might not be the right time to address it, but I don’t want to commit to you and say we’re not going to go somewhere, we’re going to go somewhere definitely, but we’re looking at a number of different meaningful alternatives, some of which may in retrospect look obvious and some of which may, even in retrospect, not look obvious but be right for us. In regard to your first question about fragrance, you know, this has been one of those ongoing existential questions that we go through, but essentially, you have to look at our fragrances business as made up in two parts. There’s the pure fragrance business, which is represented by our Aramis and designer fragrance businesses, with the Aramis brand, Tommy Hilfiger, Donna Karan, Missoni, Sean John -- those are businesses that are somewhat challenged on a global basis for a number of reasons, many of which we talked about before. Then we’ve got the fragrance businesses associated with the Estee Lauder and the Clinique brands, primarily. Those businesses, the Estee Lauder fragrance businesses and the Clinique fragrance businesses represent more than 50% of our total global fragrance businesses. So while we may lump it on a categorical basis into the two, they are two very distinct businesses. The Lauder and Clinique businesses are associated with a larger, greater brand structure, as well as selling expense, as well as total offerings, for which these fragrance businesses are still meaningful contributors, certainly on the top line, and perhaps ought to be bigger contributors on the bottom line. The more traditional pure fragrance business is the area where we think there’s trouble categorically on a macro basis in the two key markets, Europe and North America in particular, a little less so in travel retail. There, the biggest challenge for us is for us to be a major player in the cosmetics trade on a global basis, we must be a meaningful player in the fragrance business. So really, our challenge is we must continue to operate that pure fragrance business on a better basis than we are currently operating in, and we must have brands that are relevant on a global basis. As we have talked about before and I think we’ll talk about it again in more detail in March, one of the big challenges we have is that the vast majority of our fragrance portfolio are North American oriented brands. We do not have a very meaningful European or designer fragrance orientation that is non-North American driven, yet the largest, most powerful fragrance category, fragrance regions, Europe and travel retail, are predominantly oriented towards European and European designer oriented fragrances. So there’s somewhat of a mismatch there for a number of reasons, and we’ll go into greater detail with you in March. Filippe Goossens - Credit Suisse: Okay, and then if I may, with my follow-up question, it looks like the initial comments that we’re hearing from the Sephora-J.C. Penny joint venture are rather encouraging. Based on that data point, any change in your thinking, whether you might change that relationship going forward? Thanks so much. Daniel J. Brestle: We’re hearing the same positive feedback. We don’t know for fact, but I’m sure it has been successful, and no, at this point, it has not changed our attitude to which brands, if any, will go into that. Filippe Goossens - Credit Suisse: Okay. Thank you very much.

Your next question comes from Bill Schmitz with Deutsche Bank. Bill Schmitz - Deutsche Bank: Good morning. Could we just start talking about how the sales force has changed? It seems like the business is migrating more and more to alternative channels outside department stores. Can you break down North America global sales by traditional department stores versus all other outlets? Then, what has changed your philosophy to go to market with some of these smaller stores? William P. Lauder: Bill, let me try to structure for you. Thirty years ago, we had 195 separate regional department stores that were our customers. We have 16 today, so obviously the world has changed. The basic change in our field force, our account execs and trainers, is that we have regionalized, because we found that an account exec can handle more doors of the same customer versus multiple customers. The alternative distribution that you speak, much of it’s handled by a separate division of ours called specialty store, and they service people like the [Kosbar], the military. Smaller accounts that don’t get the same level of service nor the quality of education or training. It’s done usually by the account themselves. But short of that, we really haven’t seen much change in the way we do business. We still sell the same 2200 customers for the big brands we’ve sold for the last five or six years. Bill Schmitz - Deutsche Bank: Okay, great, thanks. And then just in terms of the receivables, is there going to be a down-tick in that days receivable number in the first quarter? Also, could you just comment on global trade inventories and where they stand? Richard W. Kunes: Bill, our receivables have always hovered around the low-40s. I don’t think there will be a measurable down-tick. It might go down a day or two as the year progresses, but nothing significant. As you know, we have very little bad debt as company, so it’s really not something that we are overly concerned about, and it’s really driven by the fact that our international business is growing so much faster and it’s just normal trade terms are longer internationally. I’m sorry, the second part of your question? Bill Schmitz - Deutsche Bank: I was asking the question if that was a change, because it looks like receivables increased about 22% or something year over year on a 12% increase in the sales. Richard W. Kunes: Right, and I think we explained it previously, related to new markets, primarily Russia, but there’s also, we opened businesses in Turkey. That became an affiliate, and also in Brazil. So those are the three new markets that really have longer payment terms where our business is growing nicely and it sort of affects the waiting overall. Bill Schmitz - Deutsche Bank: Okay, great, and then if I could do one follow-up on SAP, and what the timeline is for that, where you stand in the process and which divisions are going to go first? Daniel J. Brestle: We’re still pretty much on schedule I think with what we talked last time to you, Bill. The Aveda division will go first, and that’s the best place to go first, because they are a self-contained business. We’ll hit every aspect of the implementation, from distribution, manufacturing, right on through. We’re probably looking at late spring to turn the switch. Still working through some data integrity that we’ve uncovered and we are working through a warehousing system that we don’t think is quite yet ready to go. The pressure is on getting it right for us, not when it’s going to go. So probably late spring is where we’re looking now. We’ll do Aveda first, and then we’ll -- and we’ll talk about it probably again in March and then we’ll give you a rollout schedule after Aveda and the success of Aveda, where do we go from there. Bill Schmitz - Deutsche Bank: Okay, in March, will you put numbers around the savings possibility or potential? Daniel J. Brestle: Yes, we’ll give you a number and we’ll tell you where it’s coming from and what the world looks like once this is installed. Bill Schmitz - Deutsche Bank: Okay, great. Thanks very much.

Your next question comes from Linda Bolton Weiser with Oppenheimer. Linda Bolton Weiser - Oppenheimer & Co.: Thanks. I was just curious if you could comment on how Kohl's is doing, and also, could you give us -- I don’t think you gave us the growth in the U.S. overall, all channels if you exclude the growth in Latin America, Mexico, and Canada. William P. Lauder: Well, overall, the Kohl's business is doing nicely. We think that there’s an opportunity to improve it further. We saw some strength in December, which we were very pleased with, and we’re continuing to refine the model with them above the elements which drive the business. One of the things that they’re learning, something we’ve known for a long time that they’re learning is that probably the single biggest contributor to the growth in the business is the dedication of staff and store to giving the consumer service. And as they learn that the investment in staff that’s dedicated to cosmetics drives their business in an outsize manner, they’re beginning to invest more. In addition, we are looking at the right product mix and promotional mix for their store and how we communicate with the consumer. We’re pleased with the progress of where Kohl's is going. We think it can do better, should do better, but we both, ourselves and the Kohl's management, are committed to making this a successful enterprise in the long-term as we train the consumer. The overall U.S. business I think -- Rick. Richard W. Kunes: Growth is around 4% to 5%, excluding -- just the America, just the United States, excluding Canada and Latin America. Linda Bolton Weiser - Oppenheimer & Co.: Okay, great. Thanks very much.

Your next question comes from Wendy Nicholson with Citigroup Investment. Wendy C. Nicholson - Citigroup Smith Barney: Hi. I just wanted to follow up on Bill’s question. I don’t think we got an answer. For what percentage of your business in the U.S. is the department stores? I know it used to be around 80%, but has that come down materially? William P. Lauder: Wendy, I think the number was 80% of department store business. That was on a worldwide basis, and that was quite a few years ago, but North American department store business is around 38%, 39% of our business, of our global business. Wendy C. Nicholson - Citigroup Smith Barney: No, no -- okay, I just want to know in the U.S., just in the U.S., what percentage of the U.S. business is department stores? Richard W. Kunes: It’s roughly around 75% to 80% of the North American, of the U.S. business is department stores, and the other 20% is non-department store. Wendy C. Nicholson - Citigroup Smith Barney: Can you break down that 20%? I’m just trying to get a sense for how big has the Internet become versus the salons? If the department store business is 80% of your business and it was flat, I’m trying to get a feel for exactly how much the Internet versus the company-owned stores versus the salons were up? William P. Lauder: They were all up meaningfully more than the department store business. The highest growth in meaningful double-digits was Internet, next would be salon, and then third would be retail. Richard W. Kunes: All non-department store business in North America was up about 19%. Wendy C. Nicholson - Citigroup Smith Barney: Okay, good. That’s what I was looking for. Thank you. Daniel J. Brestle: Wendy, excuse me, it was not flat. It was up low single digits. The department store business was not flat. All brands up low single digits. Wendy C. Nicholson - Citigroup Smith Barney: Okay, thank you very much. My second question has to do with I think what could be perceived as sort of an increasing level of complexity in the business. I don’t know whether that’s a fair characterization or not. It strikes me that between the QVC thing, Kohl's, Sephora, Coach, the emerging market businesses, it seems like there’s just a massive amount of activity going on within the company, and that’s awesome and exciting and clearly it’s having a huge positive impact on your top line, so that’s awesome. But I’m just wondering, is that a fair characterization that it seems like you guys have moved into overdrive in terms of pursuing different growth initiatives, or is it just my external perspective that sees it that way? William P. Lauder: It’s a fair characterization that we have increased the complexity of a number of different aspects of our business. That’s very true. We are both pursuing new, alternative distribution opportunities for existing brands, as well as creating or finding opportunities in alternative non-traditional channels of distribution for ourselves. Non-traditional is what we discussed: in North America, anything outside of traditional department stores, and non-traditional in Europe is everything outside of traditional, either chain or independent perfumeries. We’ll continue to look for those opportunities where there are consumers who are shopping for better aspirational cosmetic products around the world. We know that they have alternatives about how and where they will shop at our price points and quality, and we need to make sure that we have our brands, are creating or acquiring brands which capture their imagination in those channels of distribution. We are the world’s leading prestige marketer of cosmetics and must continue to do so wherever and whenever they shop for products such as ours. Wendy C. Nicholson - Citigroup Smith Barney: Do you think you have the right management team? I mean, do you have the right organizational structure, not just the right bodies? Given you’ve got your toes in all these different waters, if you will, do you think you have the right organizational structure to accommodate and manage that growth? Today’s upside surprise is shocking and awesome and wonderful, but there have also been lots of quarters in Estee’s history where there’s a big negative surprise. I’m just wondering from a adequate control on the business, do you feel like you’ve got your arms around everything that’s going on? William P. Lauder: Well, since I have most of my senior management in the room, I’m going to ask them to cover their ears while I answer the question for you. I do believe we have the right management structure. We need to be flexible. There’s no static management structure that can work ad infinitum at the same structure. We continually are looking at optimizing and matching the right talents for the right opportunities and looking for the right talents. As far as you say, the volatility of our business, I would really encourage you, continue to look at our business on a year-on-year basis, not on a quarter-by-quarter basis. I think we’ve been talking about this scene for quite some time now. There is a tremendous amount of volatility in our business quarter to quarter, and I would actively encourage you to really look at our business year on year. You will see, I hope, a steadier, more rational progression of the business. We continue to manage our business on a long-term basis. Long-term for us is multiple years. That we look on it year on year is very important, but we really want to encourage you, long-term is not three consecutive quarters. Long-term is three, four, five consecutive years. That’s really the right way to look at our business. There are a number of different factors, a number of which Rick had spoken about before and we’ve spoken about before. There are fundamentals in the business themselves, the execution of the business themselves, and then there are the external financial factors which come into play at any given period of time. We roughly estimated that of the upside surprise, to use your words, in the quarter, about half of that would be due to factors that are somewhat beyond our control, be they interest rate driven, FX driven, tax rate that comes from the mix of business, and some of them are business rates driven, where our management did a far better job than they expected to do in a number of different aspects. I’d rather be surprised on the upside than on the downside, and manage the opportunities we then present ourselves by managing our business better. We still believe on an operational basis that there’s enormous room for us to improve on a number of different executional areas. This goes back partially to the question of the implementation of SAP and other company-wide initiatives, as well as addressing some of the fundamentals about having the right brands for the right products and the right markets and the right retail channels at the right time. Wendy C. Nicholson - Citigroup Smith Barney: That sounds great. Thanks, William.

Your next question comes from Neely Tamminga with Piper Jaffray. Neely J. N. Tamminga - Piper Jaffray: Great. Good morning, and let me add my congratulations to a phenomenal quarter. William, just a bigger picture question for you and then a follow-up just in general. On innovation, clearly you guys are making great strides on a panel innovation point of view, you know, call it Beauty Bank or the specialty stores, and then most recently with Bobbi Brown and QVC. I’m wondering a little bit more on the makeup side with respect to product innovation. It would seem to me that outside of the makeup artists brand, there could be some room for improvement on the makeup product innovation. Clearly there’s a very strong mineral-based makeup message going out there in the industry. I’m just wondering what role that has to play in prestige. William P. Lauder: Well, obviously the mineral-based story has had a tremendous impact on the psychology of the consumer. A number of our brands do have a number of products which are addressing that direct competition. If you were to look at the Clinique brand, for example, and the mineral-based foundation in the foundation category, Clinique is by far and away the leading marketer of foundations on a global basis, and certainly in North America on a value basis. The numbers are significant. If you were to add the Estee Lauder brands and the M.A.C. brands to it as a total company, the three brands combined, we are the leading marketer of foundations by far and away. And amongst the different formulae across all brands, there are dozens and dozens and dozens with tremendous innovations. We’re seeing a number of different trends which are coming together. I want to be careful. Product innovation in and of itself is important, but the real driver is that the brands capture the imagination of the consumer and the service level that’s offered for that consumer. If you look at the spectrum of what we’re offering the consumer, there still is a tremendously strong loyal following for all four of our primary -- five, excuse me, I keep thinking of -- in a family of 26 brands, everyone’s got a great offering, but the Clinique brand is the leader, as I mentioned, in North America in the foundation business. The M.A.C. brand is a close second in the foundation business. The Estee Lauder brand is tremendously strong. Bobbi Brown brand is tremendously strong. Really, the emotional and intellectual parent of the makeup artist trend is actually the Prescriptives brand, which continues to be the leader in the customer blend exact color format. The product innovation that comes from our brands are really the cutting edge within the industry. We can and should get better in attaching ourselves to each of the individual trends, but we need to make sure that each of our brands are offering the highest quality product for the right consumer in the right shades. We do believe that our brands are doing quite a good job at that. Neely J. N. Tamminga - Piper Jaffray: Thank you. I just have one quick follow-up on the salon business. In terms of the strength, maybe Rick can speak to this, was the strength coming out of the salons primarily services driven or was it product sales driven? Thank you. William P. Lauder: It’s product sales. It’s mostly product sales driven. There was a small component of salons, but we really one have the Bumble and Bumble salon that’s meaningful for our business. That’s the only one. Neely J. N. Tamminga - Piper Jaffray: Thank you very much.

Your next question comes from Christian Andreach with Manning & Napier. Christian Andreach - Manning & Napier Advisors: Good morning. I was wondering if you could just give a little bit more clarity to this second-half step-up in strategic investment spending. You mentioned some new media, but are there other areas, maybe some cost-savings investments or additional brand building investments, diversification investments? Could you just add some color there? William P. Lauder: I think, Christian, the short answer is yes, we’re going to be doing all of the above, everything you mentioned. I would like to save something to really have meaningful conversations with you in March about what we’re going to be doing, but the fact of the matter is is that we think we have some room to invest in this remaining half of this year. Rather than repeat what we’ve been doing for the last 50 years, I’m actively encouraging each of the brands to make an investment in new alternative, ground-breaking opportunities to drive their business, rather than just repeating what they’ve done before. That’s the general theme. How that plays out for each brand may be different. I’m encouraging them in new media, but that doesn’t mean that it only will be in new media. Each brand will have the opportunity to propose an idea to us, which we will agree to invest in. Christian Andreach - Manning & Napier Advisors: Okay, so you’re looking for this incremental investment to be more bottoms-up rather than tops-down driven? William P. Lauder: Yes, and also the general theme we’ve told to each brand is that this is a one-time only deal. They’re not resetting any base for next year. If it’s a successful investment that gives them a meaningful return above the norm, we’re expecting them to incorporate whatever it is that they’ve planned, whatever its success is, into next year’s base. This is not a step up in base. They must actually reallocate their spending for the following year to incorporate this new pioneering activity. Christian Andreach - Manning & Napier Advisors: Okay. I imagine -- so in March, you’ll give us some more color on what opportunities there might be in cost savings and what not. Okay. Thank you.

Your next question comes from Justin Hott with Bear Stearns. Justin Hott - Bear Stearns: Thanks. First, you talked a little bit about how you manage the business from year to year. My question is why give quarterly guidance, especially when it’s going to vary so much quarter to quarter? William P. Lauder: Boy, you asked a wonderful question. I don’t know if you’re asking anybody who’s an expert. You all are more expert than us. We, if you may recall, we were giving quarterly guidance from 1995 when we went public. A number of years ago, based on expert advice from the financial community, we went to giving half-yearly guidance, which meant effectively, we were giving actually no guidance only on the first and third quarters and guiding the second and the fourth quarters. That didn’t seem to make sense, so we started going to annual guidance. Well, in the process of going to annual guidance, one of the things we found was the volatility in the trading of our stock, as well as, more importantly, the volatility and the accuracy of the financial community who was covering us and their ability to properly forecast in the First Call number, started becoming a little difficult for everyone to manage. Now, obviously you know better the politics and what goes on about how First Call or other institutions roll up your estimates and then sort of put out a press release, essentially because it’s somewhat difficult for the outside community to model our business on the units, quarters, in which you measure, it became increasingly difficult for your community to do so, which increased the spread of your projections, which decreased the accuracy, which increased the liability in any given time that we may or may not actually perform to your expectations versus our expectations. This is a long way of saying it’s difficult for you to read our business enough to be able to accurately project, and since the world measures us not on what we think we’re going to do when we say we did it, instead measures on what you think we’re going to do versus what we do, we felt that to reduce our volatility, it might be better for us to give you the guidance that we think we’re doing. I don’t know if that made sense, but it makes sense to us. Justin Hott - Bear Stearns: I appreciate you giving me an answer. One more question, on the 200 basis points of operating margin improvement, can you give us some idea how much was advertising expense in the quarter, what the growth was or anything like that? William P. Lauder: Our advertising expense grew in value but it dropped as a percentage, and part of that, Justin, is related to the fact that a lot of the upside surprise, if you will, in sales came from brands which really spend a lot less in advertising, merchandising and sampling than some of our more traditional plans, Estee Lauder and Clinique. So it was a combination of the higher sales growth and that growth coming from brands that spend less, which sort of made the percentage go down in the particular quarter. Justin Hott - Bear Stearns: Would you say that the spending is going to, based on previous quarter versus this quarter, will the spending have to come up a little in the second-half of the year? William P. Lauder: Yes, and certainly, the programs that we talked about, which is investment opportunities to drive our business long-term, are targeted spending and in particular right in that particular category of spending, so yes, they will come up in the second-half of the year, definitely. Justin Hott - Bear Stearns: Okay. Thank you.

We have time for one more question. Your last question comes from Connie Maneaty with Prudential. Constance Maneaty - Prudential: Good morning. Just to get back to the increased spending in the second-half, Rick, did you say that with that spending, you expected the operating margin for the year to be flat versus 2006, or did I misunderstand? Richard W. Kunes: No, you’re correct, Connie. We said it would be relatively flat. Constance Maneaty - Prudential: So last year’s margin, operating margin was 9.6%, and you think it will be somewhere close to 10%, or 9.5% still? Richard W. Kunes: No, our operating margin was around 11% last year, and I think -- yes, for the full year, and that’s what we’re talking about. Constance Maneaty - Prudential: Okay, so the difference is restructuring charges. Richard W. Kunes: Sorry, yes. Constance Maneaty - Prudential: Also, in your North American sales growth at 7%, what was the impact of the distributor that was acquired? Richard W. Kunes: It was very small, quite honestly, Connie. It was more related to the hair care category, and I think that was what William’s comment referenced. But the acquisition took place I think October or early November, so it was just a very small impact in the quarter. Constance Maneaty - Prudential: Finally, if I could ask one last thing, the core weakness that you cited versus competition, has there been a change in the competitive activity? Richard W. Kunes: I don’t know if there’s been a change. The competition is quite strong. What we were saying was specifically around the Estee Lauder and Clinique brands, where they face the brunt, if you will, of the effects of the consolidation of Federated and May, and certainly because of their leading market share, when anybody grows, including M.A.C. and Bobbi Brown, in all likelihood, a piece of that is coming from the market share leaders, which is Estee Lauder and Clinique. Constance Maneaty - Prudential: So it’s actually more internal competition? Richard W. Kunes: Well, it is internal, but it is external as well. William P. Lauder: It’s internal and external, but by the way, that’s a purposeful broad strategy of our company. Constance Maneaty - Prudential: Okay, thanks.

That concludes today’s question-and-answer session. If you were unable to join for the entire call, a playback will be available at 12:00 noon Eastern Time today, through February 7th. To hear a recording of the call, please dial 800-642-1687, passcode number 5956790. That concludes today’s Estee Lauder conference call. I would like to thank you all for your participation, and wish you all a good day.

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